Stock Market closes up for the year
By Rick Paler
The trading year ended with little fanfare as many traders were on vacation and there was no major corporate news released. The economic data released this week did not impact the market and market volume was low.
In corporate news no companies reported earnings. In retail, MasterCard International reported that holiday sales seemed to increase in the final weeks of the holiday shopping season. MasterCard reported an 8.1% rise in spending from last year. Analyst had estimated that holiday spending would increase only 4.5% over last year’s strong numbers. This should support the retail sector going into next year.
Wal-Mart Stores (WMT) announced that they saw an increase in store traffic in the final week of shopping. The company now expects their December same-store sale to come in towards the middle of their prior reduced forecast of 1% - 3% sales growth.
Amazon.com (AZMN) reported that they had the busiest season ever. The company reported that it had set a one day sales record of 2.8 million units ordered.
Pfizer (PFE) was in the news again this week as the FDA approved Lyrical. Lyrica is the first FDA approved treatment for the depilating forms of pain caused by nerve damage resulting from diabetes or shingles. The Wall Street Journal also reported that sales of the arthritis pain reliever Celebrex fell 56%, after a study indicated a possible link to heart problems. Some are now questioning the study, since the study was using twice the recommended dose and another recent study released indicated that there was no link to heart problems.
Economic news this week was light. Following last weeks better than expected consumer sentiment report the Conference Board reported that consumer confidence surged to 102.3 in December, well above economist estimates of 94.0. The reading indicates that consumers are more optimistic about the economy as oil prices drop, job growth increases and the stock market posted a gain for the year. The positive news is a plus for the stock market going into 2005.
The Chicago PMI fell to 61.2 below the estimates of 65.2, but still well into the range of an expanding economy. Any number greater than 50 indicates an expanding economy while any number less than 50 indicates a contracting economy.
Bond trading was also light due to the holiday and no major news releases. Bond yield closed lower across the board compares to last month. The 5 year Treasury notes yield closed at 3.60% versus last months 3.69%. The 10 year note closed at 4.21% down from 4.35%. While the 30 year Treasury bond closed the month at 4.82% versus Novembers 5.00%.
Over the next few weeks both institutional portfolio managers and individual investors will continue to evaluate their existing portfolio holdings making important changes in their composition and allocations as they look for what will be 2005’s hot sectors and losers.
The all important fourth quarter earnings season will begin shortly and the current consensus is that earnings for the S&P 500 will grow by 15%. I would not be surprised if the final number is north of 15%. As for 2005 it is my belief that it will continue to be a stock pickers market were active professional management will outpace the indexes.
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Friday, December 31, 2004
Friday, December 24, 2004
Weekly Market Review 12-24-2004
Vioxx, Celebrex and now Aleve linked to heart problems
By Rick Paler
Overall this week’s market was nothing to write home about. As expected market action was very light due to the shortened holiday week. Big Pharma continued to take it on the chin this week, as another pain reliever was linked to heart attacks and strokes. There was little in the way of corporate news or earnings releases this week. Economic news for the week was light and uneventful.
In corporate news Pfizer (PFE) announced that it will halt the advertising of Celebrex, its blockbuster arthritis drug, after an ongoing study indicated the drug, a COX-2 Inhibitor was linked to an increase in heart problems in patients that took very high doses. But unlike Merck’s (MRK) Vioxx, Pfizer said that they would not pull the drug from the market. Additionally, this week a study was released that showed that Bayer AG‘s (BAY) over the counter pain reliever Aleve was linked to heart problems. At the same time, the same study indicated that Celebrex did not increase the likelihood of heart attacks or stroke and had the same results as the placebo.
Fannie Mae (FNM) reported this week that the CEO and CFO were forced to resign after major accounting problems were revealed. This will cause the company to restate earnings by as much a $9 billion. The new CEO Daniel Mudd and CFO Robert Levin immediately announced that the company had fired KPMG as the company’s independent auditor.
IAC/InterActive Corp (IACI) announced that the company would spin off Expedia.com. The travel related unit includes Expedia.com, Hotels.com and TripAdvisor. The company said it would maintain Ticketmaster, LendingTree, Evite and Match.com.
Insurance company PartnerRe Ltd. (PRE) has announced an accelerated share repurchase plan of 2 million shares. The share will be repurchased from Deutsche Bank AG (DB) on December 30.
Cell phone chip maker Qualcomm (QCOM) raised its first quarter guidance to $0.26 to $0.28 per share from a prior $0.24 to $0.26 per share. The company cited strong growth in networks using the company’s CDMA technology.
Cognizant Technology Solutions Corp. (CTSH) announced that it will be added to the NASDAQ-100 Index starting December 29, 2004. The IT service company’s President and CEO Lakshmi Narayanan said “We are the only IT Services firm on the list, and we are the first and only offshore firm to be included in the NASDAQ-100.”
In economic news, the final GDP was revised upwards to 4.0% from 3.9% and above what economist had estimated. The final University of Michigan Consumer Sentiment report for December came in above estimates, with a reading of 97.1 from the original reading of 95.7. The continuing positive economic data shows that the economy continues to improve and should continue its expansion well into 2005.
The slow week combined with economic data that did not overly surprise allowed bond rates to move very little. The 5 year Treasury note was unchanged from the prior week closing at 3.56%. While both the 10 year Treasury note and 30 year bond yields were fractionally higher, closing at 4.20% and 4.83% respectively.
Next week will be another very quite week with no earnings reports or major economic data being released. One point of interest is the fact that on a historical basis the final four days of trading combined with the first two of the New Year have averaged a return of 1.5% since 1950.
By Rick Paler
Overall this week’s market was nothing to write home about. As expected market action was very light due to the shortened holiday week. Big Pharma continued to take it on the chin this week, as another pain reliever was linked to heart attacks and strokes. There was little in the way of corporate news or earnings releases this week. Economic news for the week was light and uneventful.
In corporate news Pfizer (PFE) announced that it will halt the advertising of Celebrex, its blockbuster arthritis drug, after an ongoing study indicated the drug, a COX-2 Inhibitor was linked to an increase in heart problems in patients that took very high doses. But unlike Merck’s (MRK) Vioxx, Pfizer said that they would not pull the drug from the market. Additionally, this week a study was released that showed that Bayer AG‘s (BAY) over the counter pain reliever Aleve was linked to heart problems. At the same time, the same study indicated that Celebrex did not increase the likelihood of heart attacks or stroke and had the same results as the placebo.
Fannie Mae (FNM) reported this week that the CEO and CFO were forced to resign after major accounting problems were revealed. This will cause the company to restate earnings by as much a $9 billion. The new CEO Daniel Mudd and CFO Robert Levin immediately announced that the company had fired KPMG as the company’s independent auditor.
IAC/InterActive Corp (IACI) announced that the company would spin off Expedia.com. The travel related unit includes Expedia.com, Hotels.com and TripAdvisor. The company said it would maintain Ticketmaster, LendingTree, Evite and Match.com.
Insurance company PartnerRe Ltd. (PRE) has announced an accelerated share repurchase plan of 2 million shares. The share will be repurchased from Deutsche Bank AG (DB) on December 30.
Cell phone chip maker Qualcomm (QCOM) raised its first quarter guidance to $0.26 to $0.28 per share from a prior $0.24 to $0.26 per share. The company cited strong growth in networks using the company’s CDMA technology.
Cognizant Technology Solutions Corp. (CTSH) announced that it will be added to the NASDAQ-100 Index starting December 29, 2004. The IT service company’s President and CEO Lakshmi Narayanan said “We are the only IT Services firm on the list, and we are the first and only offshore firm to be included in the NASDAQ-100.”
In economic news, the final GDP was revised upwards to 4.0% from 3.9% and above what economist had estimated. The final University of Michigan Consumer Sentiment report for December came in above estimates, with a reading of 97.1 from the original reading of 95.7. The continuing positive economic data shows that the economy continues to improve and should continue its expansion well into 2005.
The slow week combined with economic data that did not overly surprise allowed bond rates to move very little. The 5 year Treasury note was unchanged from the prior week closing at 3.56%. While both the 10 year Treasury note and 30 year bond yields were fractionally higher, closing at 4.20% and 4.83% respectively.
Next week will be another very quite week with no earnings reports or major economic data being released. One point of interest is the fact that on a historical basis the final four days of trading combined with the first two of the New Year have averaged a return of 1.5% since 1950.
Friday, December 17, 2004
Weekly Market Report 12-17-2004
Interest rates, mergers and Pfizer dominate market
By Rick Paler
This week we saw the Federal Reserve raise interest rates as I had projected. Corporate mergers continue to be announced, which is a positive for the market. The biggest news of the week, although negative was Pfizer. Economic data was favorable and continues to show an expanding economy.
On Tuesday the FOMC had their meeting and as I had expected they continued with their policy of interest rate hikes to fend off inflation. The Federal Reserve raised interest rates another 25 basis points bringing the Federal Funds rate to 2.25%. The closely watched policy statement said “Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity.” This was the fifth increase since June of this year. Going into next year it is my expectation that the Federal Reserve will continue with removing its policy of accommodation at a measured pace. The next FOMC meeting is in February and based on the current economic data I anticipate another 25 basis point increase in the Fed funds rate.
Mergers seem to be the in thing to do. After last weeks announcement that Johnson & Johnson (JNJ) would be purchasing Guidant (GDT), Sprint (FON) announced that they have agreed to acquire Nextel Communications (NXTL). The $35 billion dollar deal would make Sprint the third largest wireless carrier behind Cingular Wireless and Verizon Wireless (VZ). Additionally a Vodafone (VOD) spokesperson denying rumors, said they were not planning to make a bid for Sprint.
It was reported this week that Symantec Corp. (SYMC) has been in negotiations for the last month to purchase Veritas Software (VRTS) for more than $13 billion. Shareholders of Veritas would receive 1.1242 shares of Symantec in the all-stock deal.
After a heated battle that began over a year ago Oracle (ORCL) signed an agreement to purchase PeopleSoft (PSFT) for $10.3 billion or $26.50 per share. The deal topped what they had called their final bid of $24 per share. The deal should close early next year. Additionally Oracle announced that their second quarter net income surged 32% to $815 million or $0.16 per share, well ahead of Wall Streets estimates of $0.13 per share. The company issuing third quarter guidance said it expects earning per share of $0.14 - $0.15 per share. Analysts are projecting $0.14 per share.
I view the recent increase in merger activity as a positive for the market and just the beginning of what might be an on slot of consolidation. After cutbacks in corporate spending, increases in productivity and slow hiring, during a period of expanding earnings corporations are flush with cash. Companies can do several things with the large amount of cash they are sitting on. They can use it to improve their operations infrastructure, retire long term debt, increase the dividends paid out to share holders, buy back their company shares or go shopping for acquisitions.
We have already seen corporations increasing their dividends and share buy back programs. It is my belief that many corporations are also looking for acquisition targets that would improve their market place share and provide overall cost savings.
The big corporate news this week was the announcement that Pfizer’s (PFE) arthritis drug Celebrex had been linked to increased heart risks when taken in very large doses. The study was based on patients taking between 400mg and 800mg of the drug. Most patients are taking only 100mg to 400mg and in very rare instances are given the amount used in the study. The study does put into question the entire class of Cox-2 inhibitors that are manufactured by several drug companies. Merck (MRK) had recently pulled their Cox-2 inhibitor Vioxx from the market.
Wal-Mart Stores (WMT) continues to disappoint as the company maintained their sales forecast for December of only 1% to 3% growth. The company said that their food sales remain strong but their general merchandise was not as strong. Wal-Mart recently lowered prices on many holiday gift items in an attempt to spur sales after the company started of the holiday sales season poorly.
Best Buy (BBY) reported that their net income increased 21% to $148 million or $0.45 per share which was ahead of analysts estimated by a penny. The company also announced their forth quarter guidance of $1.56 to $1.66 per share. Analysts are expecting earnings of $1.62 per share.
In economic news, retail sales for November were better than expected. The report said that retail sales for November increased 0.1% while economist had estimated a drop of 0.1%. The October number was also revised upwards from the original report of a 0.2% increase to a 0.8% increase.
This week both the Empire Manufacturing Index and the Philadelphia Fed’s Business Activity Index for December showed strong gains, coming in well above what economist had estimated. The strong numbers show that the economy is strong and continues to expand. Based on the overall all strong economic data reported for the fourth quarter I would expect the fourth quarter GDP number to come in around the 4.0% range which could provide additional stimulus for the market going into 2005.
In bond market news traders reacted after the Federal Reserve increased the Fed Funds rate by pushing bond yields higher on the short end of the yield curve, while the long end was down fractionally. This is because the shorter maturities bonds react quicker to interest rate changes. The 5 year Treasury note closed yielding 3.56% and the 10 year note was also yielding more at the close of the week, closing at 4.17%. The 30 year bond closed at 4.80% down from last week’s close of 4.81%.
Next week should be another slow week since many traders are leaving early for the holidays. There are no earnings announcements scheduled for the week and a few economic reports. Some of the economic reports due to be released are the final third quarter GDP, and Consumer Confidence report.
In closing, I would like to wish you and your family a wonderful holiday and prosperous New Year.
By Rick Paler
This week we saw the Federal Reserve raise interest rates as I had projected. Corporate mergers continue to be announced, which is a positive for the market. The biggest news of the week, although negative was Pfizer. Economic data was favorable and continues to show an expanding economy.
On Tuesday the FOMC had their meeting and as I had expected they continued with their policy of interest rate hikes to fend off inflation. The Federal Reserve raised interest rates another 25 basis points bringing the Federal Funds rate to 2.25%. The closely watched policy statement said “Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity.” This was the fifth increase since June of this year. Going into next year it is my expectation that the Federal Reserve will continue with removing its policy of accommodation at a measured pace. The next FOMC meeting is in February and based on the current economic data I anticipate another 25 basis point increase in the Fed funds rate.
Mergers seem to be the in thing to do. After last weeks announcement that Johnson & Johnson (JNJ) would be purchasing Guidant (GDT), Sprint (FON) announced that they have agreed to acquire Nextel Communications (NXTL). The $35 billion dollar deal would make Sprint the third largest wireless carrier behind Cingular Wireless and Verizon Wireless (VZ). Additionally a Vodafone (VOD) spokesperson denying rumors, said they were not planning to make a bid for Sprint.
It was reported this week that Symantec Corp. (SYMC) has been in negotiations for the last month to purchase Veritas Software (VRTS) for more than $13 billion. Shareholders of Veritas would receive 1.1242 shares of Symantec in the all-stock deal.
After a heated battle that began over a year ago Oracle (ORCL) signed an agreement to purchase PeopleSoft (PSFT) for $10.3 billion or $26.50 per share. The deal topped what they had called their final bid of $24 per share. The deal should close early next year. Additionally Oracle announced that their second quarter net income surged 32% to $815 million or $0.16 per share, well ahead of Wall Streets estimates of $0.13 per share. The company issuing third quarter guidance said it expects earning per share of $0.14 - $0.15 per share. Analysts are projecting $0.14 per share.
I view the recent increase in merger activity as a positive for the market and just the beginning of what might be an on slot of consolidation. After cutbacks in corporate spending, increases in productivity and slow hiring, during a period of expanding earnings corporations are flush with cash. Companies can do several things with the large amount of cash they are sitting on. They can use it to improve their operations infrastructure, retire long term debt, increase the dividends paid out to share holders, buy back their company shares or go shopping for acquisitions.
We have already seen corporations increasing their dividends and share buy back programs. It is my belief that many corporations are also looking for acquisition targets that would improve their market place share and provide overall cost savings.
The big corporate news this week was the announcement that Pfizer’s (PFE) arthritis drug Celebrex had been linked to increased heart risks when taken in very large doses. The study was based on patients taking between 400mg and 800mg of the drug. Most patients are taking only 100mg to 400mg and in very rare instances are given the amount used in the study. The study does put into question the entire class of Cox-2 inhibitors that are manufactured by several drug companies. Merck (MRK) had recently pulled their Cox-2 inhibitor Vioxx from the market.
Wal-Mart Stores (WMT) continues to disappoint as the company maintained their sales forecast for December of only 1% to 3% growth. The company said that their food sales remain strong but their general merchandise was not as strong. Wal-Mart recently lowered prices on many holiday gift items in an attempt to spur sales after the company started of the holiday sales season poorly.
Best Buy (BBY) reported that their net income increased 21% to $148 million or $0.45 per share which was ahead of analysts estimated by a penny. The company also announced their forth quarter guidance of $1.56 to $1.66 per share. Analysts are expecting earnings of $1.62 per share.
In economic news, retail sales for November were better than expected. The report said that retail sales for November increased 0.1% while economist had estimated a drop of 0.1%. The October number was also revised upwards from the original report of a 0.2% increase to a 0.8% increase.
This week both the Empire Manufacturing Index and the Philadelphia Fed’s Business Activity Index for December showed strong gains, coming in well above what economist had estimated. The strong numbers show that the economy is strong and continues to expand. Based on the overall all strong economic data reported for the fourth quarter I would expect the fourth quarter GDP number to come in around the 4.0% range which could provide additional stimulus for the market going into 2005.
In bond market news traders reacted after the Federal Reserve increased the Fed Funds rate by pushing bond yields higher on the short end of the yield curve, while the long end was down fractionally. This is because the shorter maturities bonds react quicker to interest rate changes. The 5 year Treasury note closed yielding 3.56% and the 10 year note was also yielding more at the close of the week, closing at 4.17%. The 30 year bond closed at 4.80% down from last week’s close of 4.81%.
Next week should be another slow week since many traders are leaving early for the holidays. There are no earnings announcements scheduled for the week and a few economic reports. Some of the economic reports due to be released are the final third quarter GDP, and Consumer Confidence report.
In closing, I would like to wish you and your family a wonderful holiday and prosperous New Year.
Friday, December 10, 2004
Weekly Market Report 12-10-2004
IBM sells its PC division
By Rick Paler
Not much happened this week as Wall Street prepares for the end of the year and 2005. This week Johnson and Johnson announced the largest purchase in the company’s history and IBM sold its PC to a Chinese based company. Oil continued its decline from record highs and the PPI number was higher than economist estimated.
It was a quite week in regards to corporate news with the only major news coming from Johnson & Johnson and IBM. It was revealed this week that Johnson & Johnson (JNJ) was in advanced talks with Guidant Corp. (GDT) to purchase the company. The board of directors of each company will be meeting over the weekend to work out the final approval of the deal and it is expected to fetch $75.00 per share for shareholders of Guidant. The purchase of Guidant would help Johnson & Johnson in the fast growing market of defibrillators, pacemakers and should help their coronary stent business. The deal would be the largest in the 118 year history of Johnson & Johnson.
As I had written about last week International Business Machines (IBM) announced that they were selling their PC division to China’s largest PC marker Lenovo Group (LNVGY) for $1.75 billion. IBM would still maintain an 18.9% stake in Lenovo. Once the deal is completed it would make Lenovo the third largest PC maker behind Dell (DELL) and Hewlett-Packard (HPQ). Lenovo said that they would move their headquarters from China to New York City. The move allows IBM to further enhance its higher margin businesses.
Proctor & Gamble (PG) confirmed that it was comfortable with analyst earnings estimates for the company’s second quarter of $0.71 to $0.72 per share and 2004 earnings of between $2.25 and $2.35 per share. The company also reaffirmed its long term sales growth target of 4% to 6%. Chairman, President and CEO A.G. Lafley said “We’re confident we have the strategies, brands, innovation pipeline and new market opportunities to sustain our strong growth.” Proctor & Gamble has 16 brands that have sales of a billion dollars and another 10 that have sales over one-half billion in sales.
Another consumer product company was in the news this week. Colgate-Palmolive (CL) announced that they would cut their work force by 12% or approximately 4,440 employees. The move is expected to save the company $250 million to $300 million after taxes annually by the fourth year. The company also reaffirmed its fourth quarter 2004 and full year 2005 guidance.
In economic news oil continued its decline from all time highs above $50.00 per barrel a short time ago, by closing the week lower at $40.70. This despite word from OPEC that it would cut production by 1 million barrels a day. Some energy analysts are suggesting that oil prices could drop lower in coming weeks.
Final Non-farm productivity for the third quarter came in below economist estimates of 2.0%. The released number showed that productivity grew at 1.8%. Productivity gains have been strong in past months. This has allowed companies to raise wages and limit hiring while not having to raise prices.
A large than anticipated rise in the November Producers Price Index, which measures inflation, had traders concerned. But after reviewing the core rate which excludes energy and food, trader’s fears of run away inflation were subdued. The PPI for November rose 0.5% after October’s sharp rise. Economist had expected an increase of just 0.1%. Year over year the PPI is up 5.0%, which is the largest increase in 15 years.
Next week, the Federal Open Market Committee will be meeting on Tuesday and after the release of this week PPI numbers the Federal Reserve will more than likely continue their policy of raising interest rates. I would anticipate the Federal Reserve to raise the Fed Funds rate another 25 basis points bringing the rate to 2.25% from this the low earlier this year of 1.0%.
Bond yields were oddly lower this week even with the streets anticipation that rates will be raised next week. The 5 year Treasury note closed at 3.51% and the 10 year note closed yielding 4.13%. The 30 year bonds yield was also lower closing at 4.81%.
Next week Wall Street will be watching the FOMC meeting on Tuesday. Additional economic news due to be released next week are Retail Sales which could effect retail stocks and the Consumer Price Index or CPI. Companies that are releasing earnings are; Oracle (ORCL), Bed Bath & Beyond (BBBY), Best Buy (BBY), Biomet (BMET), FedEx (FDX), and Nike (NKE)
By Rick Paler
Not much happened this week as Wall Street prepares for the end of the year and 2005. This week Johnson and Johnson announced the largest purchase in the company’s history and IBM sold its PC to a Chinese based company. Oil continued its decline from record highs and the PPI number was higher than economist estimated.
It was a quite week in regards to corporate news with the only major news coming from Johnson & Johnson and IBM. It was revealed this week that Johnson & Johnson (JNJ) was in advanced talks with Guidant Corp. (GDT) to purchase the company. The board of directors of each company will be meeting over the weekend to work out the final approval of the deal and it is expected to fetch $75.00 per share for shareholders of Guidant. The purchase of Guidant would help Johnson & Johnson in the fast growing market of defibrillators, pacemakers and should help their coronary stent business. The deal would be the largest in the 118 year history of Johnson & Johnson.
As I had written about last week International Business Machines (IBM) announced that they were selling their PC division to China’s largest PC marker Lenovo Group (LNVGY) for $1.75 billion. IBM would still maintain an 18.9% stake in Lenovo. Once the deal is completed it would make Lenovo the third largest PC maker behind Dell (DELL) and Hewlett-Packard (HPQ). Lenovo said that they would move their headquarters from China to New York City. The move allows IBM to further enhance its higher margin businesses.
Proctor & Gamble (PG) confirmed that it was comfortable with analyst earnings estimates for the company’s second quarter of $0.71 to $0.72 per share and 2004 earnings of between $2.25 and $2.35 per share. The company also reaffirmed its long term sales growth target of 4% to 6%. Chairman, President and CEO A.G. Lafley said “We’re confident we have the strategies, brands, innovation pipeline and new market opportunities to sustain our strong growth.” Proctor & Gamble has 16 brands that have sales of a billion dollars and another 10 that have sales over one-half billion in sales.
Another consumer product company was in the news this week. Colgate-Palmolive (CL) announced that they would cut their work force by 12% or approximately 4,440 employees. The move is expected to save the company $250 million to $300 million after taxes annually by the fourth year. The company also reaffirmed its fourth quarter 2004 and full year 2005 guidance.
In economic news oil continued its decline from all time highs above $50.00 per barrel a short time ago, by closing the week lower at $40.70. This despite word from OPEC that it would cut production by 1 million barrels a day. Some energy analysts are suggesting that oil prices could drop lower in coming weeks.
Final Non-farm productivity for the third quarter came in below economist estimates of 2.0%. The released number showed that productivity grew at 1.8%. Productivity gains have been strong in past months. This has allowed companies to raise wages and limit hiring while not having to raise prices.
A large than anticipated rise in the November Producers Price Index, which measures inflation, had traders concerned. But after reviewing the core rate which excludes energy and food, trader’s fears of run away inflation were subdued. The PPI for November rose 0.5% after October’s sharp rise. Economist had expected an increase of just 0.1%. Year over year the PPI is up 5.0%, which is the largest increase in 15 years.
Next week, the Federal Open Market Committee will be meeting on Tuesday and after the release of this week PPI numbers the Federal Reserve will more than likely continue their policy of raising interest rates. I would anticipate the Federal Reserve to raise the Fed Funds rate another 25 basis points bringing the rate to 2.25% from this the low earlier this year of 1.0%.
Bond yields were oddly lower this week even with the streets anticipation that rates will be raised next week. The 5 year Treasury note closed at 3.51% and the 10 year note closed yielding 4.13%. The 30 year bonds yield was also lower closing at 4.81%.
Next week Wall Street will be watching the FOMC meeting on Tuesday. Additional economic news due to be released next week are Retail Sales which could effect retail stocks and the Consumer Price Index or CPI. Companies that are releasing earnings are; Oracle (ORCL), Bed Bath & Beyond (BBBY), Best Buy (BBY), Biomet (BMET), FedEx (FDX), and Nike (NKE)
Friday, December 03, 2004
Weekly Market Report 12-03-2004
Major Retailers Disappoint
By Rick Paler
The much anticipated holiday retail season has kicked off. The season which began on the Friday after Thanksgiving is vastly watched by Wall Street. This is due to the fact that strength in sales over the holiday weekend might give indications on how profitable the overall holiday season will be to retail stores. Many retail stores depend on the holiday season, and a poor sales season can make the difference between posting a profit or loss for the year.
Analysts are expecting a very strong holiday sales season. According to ShopperTrak retail sales jumped 10.8% on the Friday after Thanksgiving versus last year. Visa USA also reported that their credit card holders increased charging by over 14%, while debit card usage increased 20.3%. This gave traders a reason to celebrate, since the initial figures confirmed that the holiday sales season was off to a fast start. On Monday the numbers were in and were being interrupted by the analysts.
The seemingly strong start on Friday was interrupted on Monday when several major retailers reported disappointing sales. The largest disappointment came from the likes of Wal-Mart Stores (WMT) when they announced that November same-store sales would rise just 0.7%.
A sharp drop in the price of crude oil helped to cancel out negative sales announcement and rallied the market to post positive gains for the week. Oil started the week over $50.00 per barrel and by weeks end had dropped 13% to $42.54 per barrel. Some energy analysts are now stating that oil prices could drop further. Cheaper energy cost translates to lower production cost for corporations thereby improving their bottom line. It helps consumers also, since they have more money to spend on other items rather than energy and gasoline bills.
Overall news this week was light. Corporate news was focused on the retail sector; technology stocks received a boost from Intel (INTC) and IBM (IBM), while economic news was mixed.
Shares of Wal-Mart Stores (WMT) were hit hard on Monday, when they reported that their November same-store sales would rise just 0.7%. Wall Street had expected sales growth between 2% to 4%. Sales at Wal-Mart stores increased a miserable 0.3% and Sam’s Club sales increased 2.5%. In response to the slower sales officials at the company said that it would cut prices on popular Christmas items and heavily advertise the cuts to lure shoppers back. The company also said that it estimates December same-store sales to increase only 1% - 3%.
The TJX Companies (TJX) announced that November same store sales were up 2%, while overall sales at the company were up over 10%. President and CEO, Edmond English “we will be flowing fresh gift assortments to our off-price stores at great values right up until the Christmas holiday, a strategy that we believe will serve us well again this year.”
American Eagle Outfitters Inc. (AEOS) projected their November same-store sales to increase 22.7%. This tops analyst estimates of only 17% sales growth. Citing their strong November results the company forecast earnings of $1.08 to $1.10 per share for the fourth quarter. Wall Street had expected earning for the fourth quarter of $1.05 per share.
The NASDAQ market hit multi-year highs as the index hit the highest level since July 2001. Fueling the advance this week was Intel (INTC). The company released a very upbeat midyear update. Citing strong demand for the company’s microprocessors the company upped their fourth quarter guidance sharply. The company now expects revenues of $9.3 billion to $9.5 billion. Analysts had expected fourth quarter revenues of $8.8 billion. A spokesman also said that gross margins should be in the upper half of their prior guidance and that they expected their inventories to decline by several hundred million dollars.
International Business Machines (IBM) the maker of the first personal computer back in 1981 is putting their PC division up for sale according to the New York Times. According to the report the company is in negotiations with China’s largest PC maker Lenovo Group Ltd. (LNVGY) and another unnamed company. The division is expected to sell for between $1 billion and $2 billion.
This week the National Association of Securities Dealers (NASD) fined 29 brokerage firms. The fines were similar to the ones leaved against Morgan Stanley (MWD) earlier this year. The companies involved were supposed to keep the records of their brokers updated through the filing of Form U4 and U5. The U4 form reports any regulatory actions against the broker, customer complaints, settlements, and criminal charges and convictions. Form U5 reports when a broker is no longer employed by the company. Merrill Lynch (MER) and American Express Financial Advisors (AXP) were two of the companies fined. In addition to the fine, Merrill Lynch and Wachovia Corp. (WB) were prohibited from registering new brokers for five days.
Economic news this week was mixed. The Non-farm payrolls and Consumer Confidence disappointed, when both missed prior estimates. Non-farm payrolls for November came in well below what economist had expected. Economist had expected payrolls to climb by 200,000 and only 112,000 new jobs were created. The slow growth in jobs could lead to moderation in the economic growth.
Consumer Confidence also came in below estimates. The Index reading fell to 90.5 versus the consensus of 96.0. Lower consumer confidence could curtail holiday spending.
The Personal Income and Consumption data was strong for October and the GDP numbers for the third quarter were revised upwards. The revised GDP came in at 3.9% up from the prior 3.7%. Economists now estimate that the fourth quarter GDP growth will come in at 4.0%, which bodes well for the economy and stocks.
Bond yields continue to rise in anticipation of the Federal Reserve raising interest rates at their next meeting and the continued weakness in the dollar. Yields were higher for the week and for the month of November. The 5 year Treasury note closed yielding 3.59% versus last months 3.32%. The 10 yr Treasury note ended the week at 4.25% up from 4.07% the month before. The 30 year Treasury bond closed at 4.92% compared to 4.82% a month ago. A continued rise in interest rates could pressure stocks in coming months.
Since one way of valuing stocks is to compare the earnings yield of stocks to the yield on bonds.
Next week Wall Street will continue to watch retail sales, energy prices and the dollar. Overall, given the current market conditions I believe that the market is fairly valued at these current levels. Given that, I believe that December has the potential to post positive gains for the month. A positive return for the month of December could keep the spark alive in this rally going into next year.
By Rick Paler
The much anticipated holiday retail season has kicked off. The season which began on the Friday after Thanksgiving is vastly watched by Wall Street. This is due to the fact that strength in sales over the holiday weekend might give indications on how profitable the overall holiday season will be to retail stores. Many retail stores depend on the holiday season, and a poor sales season can make the difference between posting a profit or loss for the year.
Analysts are expecting a very strong holiday sales season. According to ShopperTrak retail sales jumped 10.8% on the Friday after Thanksgiving versus last year. Visa USA also reported that their credit card holders increased charging by over 14%, while debit card usage increased 20.3%. This gave traders a reason to celebrate, since the initial figures confirmed that the holiday sales season was off to a fast start. On Monday the numbers were in and were being interrupted by the analysts.
The seemingly strong start on Friday was interrupted on Monday when several major retailers reported disappointing sales. The largest disappointment came from the likes of Wal-Mart Stores (WMT) when they announced that November same-store sales would rise just 0.7%.
A sharp drop in the price of crude oil helped to cancel out negative sales announcement and rallied the market to post positive gains for the week. Oil started the week over $50.00 per barrel and by weeks end had dropped 13% to $42.54 per barrel. Some energy analysts are now stating that oil prices could drop further. Cheaper energy cost translates to lower production cost for corporations thereby improving their bottom line. It helps consumers also, since they have more money to spend on other items rather than energy and gasoline bills.
Overall news this week was light. Corporate news was focused on the retail sector; technology stocks received a boost from Intel (INTC) and IBM (IBM), while economic news was mixed.
Shares of Wal-Mart Stores (WMT) were hit hard on Monday, when they reported that their November same-store sales would rise just 0.7%. Wall Street had expected sales growth between 2% to 4%. Sales at Wal-Mart stores increased a miserable 0.3% and Sam’s Club sales increased 2.5%. In response to the slower sales officials at the company said that it would cut prices on popular Christmas items and heavily advertise the cuts to lure shoppers back. The company also said that it estimates December same-store sales to increase only 1% - 3%.
The TJX Companies (TJX) announced that November same store sales were up 2%, while overall sales at the company were up over 10%. President and CEO, Edmond English “we will be flowing fresh gift assortments to our off-price stores at great values right up until the Christmas holiday, a strategy that we believe will serve us well again this year.”
American Eagle Outfitters Inc. (AEOS) projected their November same-store sales to increase 22.7%. This tops analyst estimates of only 17% sales growth. Citing their strong November results the company forecast earnings of $1.08 to $1.10 per share for the fourth quarter. Wall Street had expected earning for the fourth quarter of $1.05 per share.
The NASDAQ market hit multi-year highs as the index hit the highest level since July 2001. Fueling the advance this week was Intel (INTC). The company released a very upbeat midyear update. Citing strong demand for the company’s microprocessors the company upped their fourth quarter guidance sharply. The company now expects revenues of $9.3 billion to $9.5 billion. Analysts had expected fourth quarter revenues of $8.8 billion. A spokesman also said that gross margins should be in the upper half of their prior guidance and that they expected their inventories to decline by several hundred million dollars.
International Business Machines (IBM) the maker of the first personal computer back in 1981 is putting their PC division up for sale according to the New York Times. According to the report the company is in negotiations with China’s largest PC maker Lenovo Group Ltd. (LNVGY) and another unnamed company. The division is expected to sell for between $1 billion and $2 billion.
This week the National Association of Securities Dealers (NASD) fined 29 brokerage firms. The fines were similar to the ones leaved against Morgan Stanley (MWD) earlier this year. The companies involved were supposed to keep the records of their brokers updated through the filing of Form U4 and U5. The U4 form reports any regulatory actions against the broker, customer complaints, settlements, and criminal charges and convictions. Form U5 reports when a broker is no longer employed by the company. Merrill Lynch (MER) and American Express Financial Advisors (AXP) were two of the companies fined. In addition to the fine, Merrill Lynch and Wachovia Corp. (WB) were prohibited from registering new brokers for five days.
Economic news this week was mixed. The Non-farm payrolls and Consumer Confidence disappointed, when both missed prior estimates. Non-farm payrolls for November came in well below what economist had expected. Economist had expected payrolls to climb by 200,000 and only 112,000 new jobs were created. The slow growth in jobs could lead to moderation in the economic growth.
Consumer Confidence also came in below estimates. The Index reading fell to 90.5 versus the consensus of 96.0. Lower consumer confidence could curtail holiday spending.
The Personal Income and Consumption data was strong for October and the GDP numbers for the third quarter were revised upwards. The revised GDP came in at 3.9% up from the prior 3.7%. Economists now estimate that the fourth quarter GDP growth will come in at 4.0%, which bodes well for the economy and stocks.
Bond yields continue to rise in anticipation of the Federal Reserve raising interest rates at their next meeting and the continued weakness in the dollar. Yields were higher for the week and for the month of November. The 5 year Treasury note closed yielding 3.59% versus last months 3.32%. The 10 yr Treasury note ended the week at 4.25% up from 4.07% the month before. The 30 year Treasury bond closed at 4.92% compared to 4.82% a month ago. A continued rise in interest rates could pressure stocks in coming months.
Since one way of valuing stocks is to compare the earnings yield of stocks to the yield on bonds.
Next week Wall Street will continue to watch retail sales, energy prices and the dollar. Overall, given the current market conditions I believe that the market is fairly valued at these current levels. Given that, I believe that December has the potential to post positive gains for the month. A positive return for the month of December could keep the spark alive in this rally going into next year.
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